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3 Auto Stocks to Race Ahead This Earnings Season - Earnings ESP

After a weak beginning to the year due to unfavorable weather
conditions, U.S. auto sales have shown improvement over the past
few months. Consequently, U.S. light-vehicle sales improved 4% year
over year to 8.17 million units in the first half of 2014.

In fact, for the first time since Jul 2006, sales on a seasonally
adjusted annualized rate (SAAR) basis reached the 17 million mark
in Jun 2014. Moreover, SAAR has remained above 16 million units in
the last 4 months.

The strong sales volumes raise expectations of robust revenue
figures for the major automakers. However, these automakers are
offering significant incentives to boost sales, which may hurt
their margins. Incentives in the form of discounts led to a 2.2%
sequential decline in the average transaction price for light
vehicles to $30,575 in June, per TrueCar Inc.

On the other hand, rising auto sales volumes increase the revenues
of car parts manufacturers and retailers. The high average age of
vehicles on U.S. roads is also resulting in demand for parts
replacement. Thus, overall, the automobile sector's prospects seem
bright this year. In fact, for the first time since the recession
in 2008, U.S. auto sales are expected to surpass 16 million units
in 2014.

Thus, it may be a good idea to look at some companies in the
automobile sector that have the potential to beat earnings in their
upcoming releases.

The Way to Pick Right Stocks

The large number of industry participants makes it difficult to
shortlist stocks that have the potential to beat earnings. This is
where the Zacks proprietary methodology comes of help. It aids in
narrowing down the list by looking at stocks that have the
combination of a favorable Zacks Rank - Zacks Rank #1 (Strong Buy),
2 (Buy) or 3 (Hold) - and a positive
Earnings ESP
.

Earnings ESP shows the percentage difference between the Most
Accurate estimate and the Zacks Consensus Estimate. It helps in
selecting stocks that have high chances of posting a positive
earnings surprise in their next earnings announcement.

Our research shows that for stocks with this combination, the
chance of a positive earnings surprise is as high as 70%. Here, we
have selected 3 stocks from the automobile sector that have the
right combination of elements to report an earnings beat this
earnings season.

Allison Transmission Holdings, Inc.
(
ALSN
) has a Zacks Rank #3 and an Earnings ESP of +9.68%. The Zacks
Consensus Estimate for the company's second-quarter earnings is 31
cents per share, which reflects an expected year-over-year gain of
13.89%.

Allison Transmission has a history of outperforming earnings
estimates. The company delivered positive earnings surprises in the
trailing four quarters with an average beat of an astounding
90.55%.

Indiana-based Allison Transmission is among the major manufacturers
of commercial-duty automatic transmissions and hybrid propulsion
systems globally. The company also supplies various auto parts and
services customer through 1,400 independent distributor and dealer
locations across the world. The company is expected to report
second-quarter results on Jul 24, 2014.

Ohio-based Dana Holdings supplies high technology driveline,
including axles, driveshafts and transmissions, as well as sealing
and thermal-management products to the light, medium and heavy
vehicle and off-highway markets worldwide. The company will post
second-quarter earnings on Jul 24, 2014.

Gentex Corp.
(
GNTX
) has a Zacks Rank #1 and an Earnings ESP of +2.08%. The Zacks
Consensus Estimate for the company's second-quarter 2014 earnings
is 48 cents per share, an estimated increase of 32.14% over the
second quarter of 2013.

Gentex delivered positive earnings surprises in the trailing four
quarters with an average beat of 10.36%. The earnings beat streak
is expected to continue in second-quarter 2014 as well.

Gentex is an auto parts company that provides auto-dimming rearview
mirrors with advanced electronic features, including CMOS
imagers/cameras to the automotive industry, commercial fire
protection products to the U.S. market, as well as dimmable
aircraft windows to the aerospace industry. The company will report
second-quarter 2014 earnings on Jul 24, 2014.

Bottom Line

Above-expectation earnings increase investors' confidence in a
stock, which leads to immediate price appreciation. Thus, investing
in these companies, which have an earnings beat potential, should
yield strong returns for your portfolio in the short term.

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